Transmission Gully PPP could split next week

Sources close to the project say lockdown has given companies associated with Transmission Gully an out

After delays, an earthquake, storms, cost blow-outs and legal disputes, a much-vaunted public-private partnership for the Wellington region could come to an end next week.

A clause within the PPP partnership agreement allows the road's builders CPB and HEB to walk away from the $1b Transmission Gully project if they've been locked out of the site for two months.

The full cost of finishing the road could then fall to the coalition Government. Which would delay it even further.

Newsroom was told by sources close to the project that the clock on the agreement's end started ticking after the country went into Level 4 lockdown on March 25.

Lockout clause conditions in the contract would be met if Level 2 restrictions remained in place until May 25 even though construction work was allowed to resume at Level 3 and later at Level 2 on May 14.

Behind closed doors the joint venture partners have allegedly argued they were still locked out from the site because certain aspects of Transmission Gully work couldn't be completed under Ministry of Health guidelines.

Those included the transportation of large numbers of people by car and site-wide meetings of employees.

Australian-based CIMIC, who own CPB, and NZTA have declined to comment on the existence of this "lockout" clause and whether it was being exercised.

National MP Chris Bishop confirmed that he also had been told that such a clause existed in the PPP contract.

He blamed NZTA and the Transport Minister Phil Twyford for making a $190m advance payment on the Transmission Gully project that they weren't liable for.

"The Crown is now seen as a soft touch.

"I think the problem goes back to the first payment (of $190m) in February. My understanding is the legal advice to NZTA was not to pay. There was no liability and they paid anyway."

Twyford said Bishop's criticisms were "astounding" and the former National government was to blame for signing off on the deal.

"He should be directing his complaints to the transport minister who set it up - Gerry Brownlee."

Roading problems before lockdown

If one or both of the joint venture partners go, they'll leave behind some awkward questions for taxpayers.

The 27km road is chipseal along main stretches, but structural asphalt would be used at the southern end of the motorway on bridges and at all interchanges.

However, asphalt is more commonly used on high volume motorways because chipseal needs to be replaced more frequently. A roading engineer told Newsroom some high volume chipseal roads needed to be resurfaced within eight years.

The use of chipseal for a high volume road isn't uncommon. Within a design and build contract like Transmission Gully, that resurfacing cost would normally be borne by the builder - the CPB and HEB joint venture.

That issue of liability could get murkier if one of the builders were able to walk away from the project entirely.

Max Rashbrooke, author of Government for the Public Good and a vocal critic of public private partnerships, said we wouldn't really know how much of a mess had been left behind until after the partnership dissolved.

Rashbrooke said in the case of the failed London Underground PPP, the government discovered much of the work had been completed badly and at high cost.

"[It] left the public sector with an expensive clean-up job."

Questions have already been raised about "process errors" detected during the road's construction. The worst of these was 400m long, according to NZTA.

Sources close to the project insisted this was an underestimate and the testing regime was flawed because it relied on engineers from within the joint venture to test faults. They said the actual lengths of road involved could be much longer.

Andrew Thackwray, NZTA senior manager project delivery, said "process errors" during construction were relatively normal and "robust quality assurance" had been in place throughout.

"Quality testing is carried out by professional engineers within the project, in accordance with inspection and testing plans developed by designers and is also reviewed by independent specialists and by Waka Kotahi (NZTA) staff.

"Waka Kotahi is confident that the level of quality control and assurance on Transmission Gully will ensure a high quality pavement."

Not all PPPs

The private consortium Wellington Gateway Partnership has been contracted to design, build and maintain Transmission Gully over a 25-year period.

Infrastructure NZ CEO Paul Blair said that arrangement had taken the financial risk of the project off the taxpayer because the consortium had to finance the project and pay for it upfront.

"It is terrible country through there. They've had Kaikoura quakes, they've had Covid-19, they've had failure of the councils to consent the bloody thing.

"Our Government could be doing it and they'd be wearing all of the pain."

Rashbrooke said NZTA had departed from that theory in this case by making a $190m advance payment.

While the Government would be left with part of an asset if project partners walked away, they could also be left with a legal dispute.

"The way it's really supposed to work is the consortium borrows the money from banks, or has equity investors, and that's what tides it through until it proves its performance and the state starts paying it.

"It does reveal that a lot of the supposed risk transfer in these projects is an illusion."

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